What to look out for in Apple’s first-quarter earnings

Apple Inc iPhone, iPad sales expected to drive record Q1 earnings

Will next week bring yet another record quarter for Apple Inc.? The iPhone and iPad maker will announce its first quarter results for fiscal 2014 on Monday — and analysts are expecting sales of the company’s two most popular devices to beat expectations once again.

Analyst estimates compiled by Bloomberg anticipate earnings per share of US$14 on US$57.5-billion in revenue – which, if true, would beat last year’s US$54.5-billion quarter by 5.5%. Apple’s guidance for the quarter is between US$55-billion and US$58-billion.

But profit, which has fallen for three straight quarters, is expected to decline once again – down 3.1% from US$13.1-billion in the year-ago quarter, to an analyst consensus of US$12.7-billion, a full year of profit decline.

iPhone sales – which account for more than half of Apple’s sales – are also estimated to receive a sizeable bump. Analysts expect iPhone sales to hit 55 million, up from 47.8 million iPhones in the year ago quarter, and 33.8 million iPhones in the fourth quarter of 2013.

This is likely due, in part, to Apple’s introduction of not one, but two new iPhones last fall – the higher-end iPhone 5S, and the plastic-backed redesign of last year’s iPhone 5, rebranded as the iPhone 5C. But also of note is Apple’s much-anticipated deal with China Mobile last month, the largest mobile carrier in the world, which could net the iPhone maker at least 17 million in sales this year on the low end, or as many as 38.7 million on the higher end of analyst estimates.

The first quarter of 2014 was the first full quarter of availability for the two new phones. Apple had previously announced that more than 9 million iPhone 5S and iPhone 5C smartphones were sold during the first weekend of sales alone.

Slowing iPad growth?

And, of course, there is the iPad, Apple’s second-biggest cash cow. Four years since the iPad was first announced, it’s less a question of how many Apple sold last quarter, but how many more than the same quarter last year – and here, too, analysts are expecting a record quarter. Twenty-five million iPads sold is the consensus, versus 22.9 million in the year ago quarter.

Apple introduced two new iPads to its line last fall: the thinner, full-sized iPad Air, and an updated version of its iPad Mini with retina display.

However, according to Credit Suisse analyst Talal Khan, that growth is beginning to slow, forecasting Apple’s share of the tablet market at just 22% this year – down almost half from 41% in the calendar 2012 year.

“While we see the tablet market growing to 447 million units by 2017 (nearly twice calendar year 2013 estimates) we see most of the incremental growth in the sub $200 [average selling price] segment where Apple is not currently exposed,” Mr. Khan said.

Apple typically declines to break down sales between iPhone and iPad models, preferring instead to lump total sales together into one figure. However, UBS analyst Steven Milunovich, citing Consumer Intelligence Research Partners (CIRP) data, believes demand for the iPhone 5S is outstripping iPhone 5C demand by a 2.2 to 1 ratio.

What’s next for Apple

A Wall Street Journal report from earlier this week, citing people familiar with the matter, said that Apple plans to introduce two new iPhones with larger displays later in the year. One device would, apparently, boast a screen at least 4.5 inches in size, while the other would measure at least 5 inches.

Apple’s plans – if true, an obvious nod to the success of phones such as the Samsung Galaxy line and other Google Android devices with similarly sized displays – would also involve scrapping the plastic-backed iPhone 5C, in favour of a return to metal casings.

As for the iPad, Mr. Milunovich believes the iPad Air already accounts for 42% of last quarter’s iPad mix – impressive, considering the latest model didn’t begin shipping until Nov. 1, almost a third of the way through the quarter.

Mr. Milunovich has set his firm’s price target for Apple stock at US$650 per share.

On Wedesnday, Goldman Sachs raised its own price target to US$635 from US$620, rating the stock a buy.

Chief executive officer Tim Cook has hinted at forthcoming products during earnings calls with investors in the past, teasing “the potential of exciting new product categories” in April of last year.

A rumour from website 9to5Mac, for example, suggested a hardware and software update for Apple’s other iOS device, the AppleTV, is coming during the first half of the year. The popular, diminutive set-top box, can be used to buy and rent streaming video content from the iTunes store, as well as display videos and games streamed from either an iPhone, iPad or Mac over a local network.

However, speculation regarding an Apple-made smartwatch or television has grown quiet in recent months.

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